News Release Details

The Ensign Group Reports Fourth Quarter and Fiscal Year 2018 Results

MISSION VIEJO, Calif., Feb. 06, 2019 (GLOBE NEWSWIRE) -- The Ensign Group, Inc. (Nasdaq: ENSG), the parent company of the Ensign™ group of skilled nursing, rehabilitative care services, home health, home care, hospice care and assisted living companies, today announced its operating results for the fourth quarter and full year 2018, reporting record GAAP diluted earnings per share of $0.48 for the quarter and $1.70 for the year and record adjusted earnings per share of $0.54 for the quarter and $1.88 for the year (1).

Highlights Include:

GAAP earnings per share for the year was $1.70, an increase of 120.8% over the prior year, and adjusted earnings per share was $1.88, up 34.3% over the prior year(1)(2);

GAAP earnings per share for the fourth quarter was $0.48, an increase of 128.6% from the prior year quarter, and adjusted earnings per share was $0.54, an increase of 35.0% over the prior year quarter(1)(2);

Consolidated GAAP Net Income for the year was $92.4 million, an increase of 128.2% over the prior year, and consolidated adjusted Net Income for the year was $102.1 million, an increase of 38.3% over the prior year (1)(2);

Consolidated GAAP Net Income for the fourth quarter was $26.4 million, an increase of 135.2% from the prior year quarter, and adjusted Net Income was $29.4 million, an increase of 39.5% from the prior year quarter(1)(2);

Total Transitional and Skilled Services segment income was $190.9 million for the year, an increase of 36.1% over the prior year, and was $55.2 million for the quarter, an increase of 38.2% over the prior year quarter and 19% sequentially over the third quarter;

Same store skilled services occupancy was 78.8%, an increase of 63 basis points over the prior year, and transitioning skilled services occupancy was 75.0%, an increase of 296 basis points over the prior year;

Total Home Health and Hospice Services segment revenue for the year was up 20.0% over the prior year to $170.9 million and segment income for the year was up 32.5% over the prior year to $26.1 million(3); and

Total Assisted Living Services segment revenue for the year was up 11.1% over the prior year to $151.8 million and adjusted EBITDAR for the year was up 9.1% over the prior year to $52.8 million.

See "Reconciliation of GAAP to Non-GAAP Financial Information".

Adjusted earnings per share and Consolidated Adjusted Net Income increased by 15.3% and 18.8%, respectively, over the prior year if we applied a 25% tax rate to both periods. Adjusted earnings per share and Consolidated Adjusted Net Income increased by 17.4% and 20.0%, respectively, over the prior year quarter if we applied a 25% tax rate to both periods.

Excludes the impact for the adoption of ASC 606.

Operating Results

“We are thrilled to report a record quarter as we achieved our highest adjusted earnings per share in our history,” said Ensign’s President and Chief Executive Officer Christopher Christensen. “The improvement we have been expecting in many of our operations, especially in Texas and Utah, is now materializing and making a meaningful contribution to our performance. However, we have many operations across all of our different buckets in all our geographies that still have tremendous organic upside, even in some of our most mature markets,” he added. He credited the local operational and clinical leadership teams and all of their field-based and Service Center partners for continuing their relentless focus on clinical and financial performance while they continued to integrate 148 transitioning and newly acquired operations into the organization.

“Our other lines of business continue to quietly create significant value,” Christensen stated. He noted that Cornerstone Healthcare, Inc., Ensign’s home health and hospice portfolio subsidiary, grew its segment revenue and income by 20.0% and 32.5%, respectively, over the prior year. Similarly, he said that Ensign’s assisted living and independent living portfolio company, which provides senior living services in 12 states, grew its segment revenue and adjusted EBITDAR by 11.1% and 9.1%, respectively, over the prior year. Collectively, these two business segments now represent 15.7% of Ensign’s consolidated revenue. “We are making progress in our evaluation of a long-term strategic opportunity involving our new venture businesses. Just as with our real estate transaction in 2014, our goal has been, and will be, to ensure that these businesses will benefit our shareholders over the long run,” he added.

Management also provided its 2019 annual guidance with earnings of between $2.17 and $2.26 per diluted share and annual revenue between $2.29 billion and $2.35 billion. Overall, the midpoint of this guidance represents a 19%, or $0.36 per share, increase from the midpoint of management’s annual earnings guidance for 2018. “We are very excited about the coming year and our guidance demonstrates our optimism for the future,” he said.

Chief Financial Officer Suzanne Snapper reported that, “Our liquidity remains strong with approximately $307.1 million of availability on Ensign’s $450 million credit facility, which also has a built-in expansion option, and 52 unlevered real estate assets that add additional liquidity.” She also reported that, even after some significant acquisition activity in the quarter, the Company’s lease-adjusted net-debt-to-adjusted EBITDAR ratio decreased again to 3.77x at year end, down from 4.2x at the end of the prior year. She attributed this trend to the fact that EBITDAR from transitioning and newly acquired operations has continued to grow. She also indicated that cash generated from operations was $210.3 million for the year, which was primarily driven by an increase in operating results, stronger collections and lower taxes.

A discussion of the company's use of non-GAAP financial measures is set forth below. A reconciliation of net income to EBITDA, adjusted EBITDAR and adjusted EBITDA, as well as a reconciliation of GAAP earnings per share, net income to adjusted net earnings per share and adjusted net income, appear in the financial data portion of this release. More complete information is contained in the company’s Annual Report on Form 10-K for the year ended December 31, 2018, which is expected to be filed with the SEC today and can be viewed on the company’s website at http://www.ensigngroup.net.

Quarter Highlights

During the quarter, the Company paid a quarterly cash dividend of $0.0475 per share of Ensign common stock. “We are pleased to announce our sixteenth consecutive annual dividend increase, which reflects our strong market position and continued commitment to return value to our shareholders,” Christensen commented.

In October, Ensign announced that its senior living portfolio company, acquired the real estate and operations of Villa Court Assisted Living and Memory Care, a 53-unit assisted living and 20-unit memory care facility located in Las Vegas, Nevada. “We are thrilled to expand our senior housing footprint in Las Vegas. It’s a market in which we anticipate growing as we rely on the talented leaders there that each seek to become the community of choice in their area,” Christensen added.

In November, Ensign announced that its affiliate acquired the real estate and operations of Rock Creek of Ottawa, a post-acute care retirement campus with 93 skilled nursing beds, 71 assisted living units and 24 independent living units located in Ottawa, Kansas. This acquisition represented the fourth transition from a non-profit seller in 2018, demonstrating Ensign’s continued success in working with non-profit operators that are looking to reposition their assets.

Also in November, Ensign acquired the real estate and operations of Creekside Transitional Care and Rehabilitation, a 139-bed skilled nursing and 21-unit assisted living facility located in Meridian, Idaho, and Bennett Hills Rehabilitation and Care Center, a 44-bed skilled nursing facility located in Gooding, Idaho. These acquisitions bring the number of skilled nursing operations in Idaho to 10, further demonstrating Ensign’s strategy of developing strong clusters in each local healthcare market.

Ensign’s senior living portfolio company also acquired the operations of four assisted living facilities in the Dallas-Fort Worth area of Texas, including: Canyon Creek Memory Care, a 52-unit memory care facility located in Temple, Texas; Bridgewater Memory Care, a 52-unit memory care facility located in Granbury, Texas; Lakeshore Assisted Living and Memory Care, a 46-unit assisted living and 30-unit memory care community located in Rockwall, Texas; and Windsor Court Senior Living, a retirement community with 36 independent living units, 16 memory care units, and seven assisted living units located in Weatherford, Texas.

Also during the quarter, Cornerstone Healthcare Inc., acquired the following: Alpha Nursing, a home health agency in Washington; Cornerstone Home Health and Hospice in Utah; and Sequoia Hospice in California. “Each of these acquisitions are small agencies that we purchased from small business owners that were looking to exit the space. We continue to see attractive growth opportunities like these and will opportunistically acquire when our leadership talent, geography and pricing align,” Christensen added.

Lastly, in January, the Company announced that it acquired the real estate and operations of Cedar Health and Rehabilitation, a skilled nursing facility with 120 skilled nursing beds located in Cedar City, Utah. “As is the case with all of our acquisition efforts, we pursued these operations because our local leaders see a pathway to meaningfully impact the quality of the healthcare services delivered to their residents and resulting occupancy improvements,” Christensen added.

These additions bring Ensign's growing portfolio to 189 skilled nursing operations, 24 of which also include assisted living operations, 55 assisted and independent living operations, 23 hospice agencies, 24 home health agencies and seven home care businesses across sixteen states. Ensign owns the real estate at 72 of its 244 healthcare facilities. Mr. Christensen reaffirmed that Ensign continues to actively seek transactions to acquire real estate and to lease both well-performing and struggling skilled nursing, assisted living and other healthcare related businesses in new and existing markets.

2019 Guidance

Management provided guidance for 2019, with annual revenue guidance of $2.29 billion to $2.35 billion and annual earnings per share guidance of $2.17 to $2.26 per diluted share for 2019. This guidance represents a 19%, or $0.36 per share, increase from the midpoint of management’s previous annual earnings guidance for 2018. Management’s guidance is based on diluted weighted average common shares outstanding of approximately 56.7 million and a 25% tax rate. In addition, the guidance assumes, among other things, normalized health insurance costs, anticipated Medicare and Medicaid reimbursement rate increases, net of provider taxes and acquisitions closed in the first half of 2019. It also excludes acquisition-related costs and amortization costs related to intangible assets acquired, share-based compensation and start-up losses.

Conference Call

A live webcast will be held Thursday, February 7, 2019 at 10:00 a.m. Pacific time (1:00 p.m. Eastern time) to discuss Ensign’s fourth quarter and fiscal year 2018 financial results. To listen to the webcast, or to view any financial or statistical information required by SEC Regulation G, please visit the Investors Relations section of Ensign’s website at http://investor.ensigngroup.net. The webcast will be recorded, and will be available for replay via the website until 5:00 p.m. Pacific Time on Friday, March 1, 2019.

About Ensign™

The Ensign Group, Inc.'s independent operating subsidiaries provide a broad spectrum of skilled nursing and assisted living services, physical, occupational and speech therapies, home health and hospice services and other rehabilitative and healthcare services at 244 healthcare facilities, 23 hospice agencies, 24 home health agencies and seven home care businesses in California, Arizona, Texas, Washington, Utah, Idaho, Colorado, Nevada, Iowa, Nebraska, Oregon, Wisconsin, Kansas, South Carolina, Oklahoma, and Wyoming. Each of these operations is operated by a separate, independent operating subsidiary that has its own management, employees and assets. References herein to the consolidated “company” and “its” assets and activities, as well as the use of the terms “we,” “us,” “its” and similar terms, are not meant to imply that The Ensign Group, Inc. has direct operating assets, employees or revenue, or that any of the operations, the home health and hospice businesses, the Service Center or the captive insurance subsidiary are operated by the same entity. More information about Ensign is available at http://www.ensigngroup.net.

This press release contains, and the related conference call and webcast will include, forward-looking statements that are based on management’s current expectations, assumptions and beliefs about its business, financial performance, operating results, the industry in which it operates and other future events. Forward-looking statements can often be identified by words such as "anticipates," "expects," "intends," "plans," "predicts," "believes," "seeks," "estimates," "may," "will," "should," "would," "could," "potential," "continue," "ongoing," similar expressions, and variations or negatives of these words. These forward-looking statements include, but are not limited to, statements regarding growth prospects, future operating and financial performance, and acquisition activities. They are not guarantees of future results and are subject to risks, uncertainties and assumptions that could cause actual results to materially and adversely differ from those expressed in any forward-looking statement.

These risks and uncertainties relate to the company’s business, its industry and its common stock and include: reduced prices and reimbursement rates for its services; its ability to acquire, develop, manage or improve operations, its ability to manage its increasing borrowing costs as it incurs additional indebtedness to fund the acquisition and development of operations; its ability to access capital on a cost-effective basis to continue to successfully implement its growth strategy; its operating margins and profitability could suffer if it is unable to grow and manage effectively its increasing number of operations; competition from other companies in the acquisition, development and operation of facilities; its ability to defend claims and lawsuits, including professional liability claims alleging that our services resulted in personal injury, and other regulatory-related claims; and the application of existing or proposed government regulations, or the adoption of new laws and regulations, that could limit its business operations, require it to incur significant expenditures or limit its ability to relocate its operations if necessary. Readers should not place undue reliance on any forward-looking statements and are encouraged to review the company’s periodic filings with the Securities and Exchange Commission, including its Form 10-K, for a more complete discussion of the risks and other factors that could affect Ensign’s business, prospects and any forward-looking statements. Except as required by the federal securities laws, Ensign does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changing circumstances or any other reason after the date of this press release.

* Campus represents a facility that offers both skilled nursing, assisted and/or independently living services. Revenue and expenses related to skilled nursing, assisted and independent living services have been allocated and recorded in the respective reportable segment.

(1) Same Facility results represent all facilities purchased prior to January 1, 2015.

(2) Transitioning Facility results represents all facilities purchased from January 1, 2015 to December 31, 2016.

* Campus represents a facility that offers both skilled nursing, assisted and/or independent living services. Revenue and expenses related to skilled nursing, assisted and independent living services have been allocated and recorded in the respective reportable segment.

(1) Same Facility results represent all facilities purchased prior to January 1, 2015.

(2) Transitioning Facility results represent all facilities purchased from January 1, 2015 to December 31, 2016.

(4) Facility Closed results represent closed operations during the year ended December 31, 2017, which were excluded from Same Store and Transitioning results for the year ended December 31, 2017, for comparison purposes.

THE ENSIGN GROUP, INC.

SKILLED NURSING AVERAGE DAILY REVENUE RATES AND

PERCENT OF SKILLED NURSING REVENUE AND DAYS BY PAYOR

The following table reflects the change in skilled nursing average daily revenue rates by payor source, excluding services that are not covered by the daily rate:

Three Months Ended December 31,

Same Facility

Transitioning

Acquisitions

Total

2018

2017

2018

2017

2018

2017

2018

2017

Skilled Nursing Average Daily Revenue Rates:

Medicare

$

625.29

$

612.89

$

525.44

$

514.34

$

531.75

$

517.26

$

590.27

$

576.93

Managed care

469.53

455.55

417.66

409.54

412.85

426.99

450.91

441.71

Other skilled

504.67

471.08

354.42

351.02

517.34

425.31

486.26

453.31

Total skilled revenue

539.91

520.39

461.99

455.88

481.67

478.03

516.35

501.22

Medicaid

234.66

221.23

201.70

191.97

231.08

215.32

225.68

213.31

Private and other payors

229.13

200.39

199.94

184.56

223.75

211.38

219.89

210.57

Total skilled nursing revenue

$

327.17

$

307.86

$

271.87

$

267.20

$

284.91

$

267.93

$

308.52

$

297.12

YearEnded December 31,

Same Facility

Transitioning

Acquisitions

Total

2018

2017

2018

2017

2018

2017

2018

2017

Skilled Nursing Average Daily Revenue Rates:

Medicare

$

615.47

$

603.28

$

518.33

$

508.15

$

528.92

$

506.12

$

580.96

$

569.77

Managed care

464.89

451.28

412.42

414.44

415.49

416.25

447.34

440.55

Other skilled

493.63

465.72

354.34

364.65

489.66

470.51

475.59

451.16

Total skilled revenue

530.95

516.26

457.59

457.93

483.67

479.63

509.10

499.51

Medicaid

226.64

217.47

196.47

184.24

221.42

206.32

218.30

208.24

Private and other payors

225.89

202.22

201.03

191.92

226.71

210.28

218.42

209.72

Total skilled nursing revenue

$

320.96

$

307.35

$

272.34

$

267.71

$

279.86

$

262.90

$

304.57

$

296.84

The following tables set forth our percentage of skilled nursing patient revenue and days by payor source for the three months ended and year ended December 31, 2018 and 2017:

Three Months Ended December 31,

Same Facility

Transitioning

Acquisitions

Total

2018

2017

2018

2017

2018

2017

2018

2017

Percentage of Skilled Nursing Revenue:

Medicare

23.6

%

23.3

%

24.2

%

27.2

%

20.3

%

22.2

%

23.4

%

24.2

%

Managed care

16.8

%

18.1

%

18.6

%

19.0

%

13.0

%

10.4

%

16.9

%

17.8

%

Other skilled

9.9

%

9.0

%

3.2

%

3.2

%

3.7

%

3.5

%

7.8

%

7.3

%

Skilled mix

50.3

%

50.4

%

46.0

%

49.4

%

37.0

%

36.1

%

48.1

%

49.3

%

Private and other payors

7.6

%

7.8

%

9.8

%

10.9

%

10.7

%

12.3

%

8.4

%

8.9

%

Quality mix

57.9

%

58.2

%

55.8

%

60.3

%

47.7

%

48.4

%

56.5

%

58.2

%

Medicaid

42.1

%

41.8

%

44.2

%

39.7

%

52.3

%

51.6

%

43.5

%

41.8

%

Total skilled nursing

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

Three Months Ended December 31,

Same Facility

Transitioning

Acquisitions

Total

2018

2017

2018

2017

2018

2017

2018

2017

Percentage of Skilled Nursing Days:

Medicare

12.3

%

11.8

%

12.5

%

14.2

%

10.8

%

11.5

%

12.2

%

12.4

%

Managed care

11.6

%

12.3

%

12.1

%

12.4

%

8.9

%

6.5

%

11.5

%

11.9

%

Other skilled

6.5

%

5.9

%

2.4

%

2.5

%

2.1

%

2.3

%

4.9

%

4.8

%

Skilled mix

30.4

%

30.0

%

27.0

%

29.1

%

21.8

%

20.3

%

28.6

%

29.1

%

Private and other payors

11.2

%

11.6

%

13.5

%

15.4

%

14.0

%

15.5

%

12.2

%

12.9

%

Quality mix

41.6

%

41.6

%

40.5

%

44.5

%

35.8

%

35.8

%

40.8

%

42.0

%

Medicaid

58.4

%

58.4

%

59.5

%

55.5

%

64.2

%

64.2

%

59.2

%

58.0

%

Total skilled nursing

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

Year Ended December 31,

Same Facility

Transitioning

Acquisitions

Total

2018

2017

2018

2017

2018

2017

2018

2017

Percentage of Skilled Nursing Revenue:

Medicare

23.8

%

24.7

%

25.9

%

29.0

%

22.3

%

25.8

%

24.2

%

25.8

%

Managed care

17.8

%

18.2

%

19.4

%

19.1

%

11.9

%

8.5

%

17.7

%

18.1

%

Other skilled

9.7

%

8.6

%

3.1

%

3.4

%

3.8

%

3.0

%

7.7

%

7.2

%

Skilled mix

51.3

%

51.5

%

48.4

%

51.5

%

38.0

%

37.3

%

49.6

%

51.1

%

Private and other payors

7.7

%

7.9

%

10.1

%

10.5

%

11.3

%

13.2

%

8.5

%

8.6

%

Quality mix

59.0

%

59.4

%

58.5

%

62.0

%

49.3

%

50.5

%

58.1

%

59.7

%

Medicaid

41.0

%

40.6

%

41.5

%

38.0

%

50.7

%

49.5

%

41.9

%

40.3

%

Total skilled nursing

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

Year Ended December 31,

Same Facility

Transitioning

Acquisitions

Total

2018

2017

2018

2017

2018

2017

2018

2017

Percentage of Skilled Nursing Days:

Medicare

12.3

%

12.6

%

13.6

%

15.3

%

11.7

%

13.4

%

12.6

%

13.4

%

Managed care

12.2

%

12.5

%

12.8

%

12.3

%

8.0

%

5.4

%

12.0

%

12.2

%

Other skilled

6.4

%

5.7

%

2.4

%

2.5

%

2.2

%

1.7

%

4.9

%

4.7

%

Skilled mix

30.9

%

30.8

%

28.8

%

30.1

%

21.9

%

20.5

%

29.5

%

30.3

%

Private and other payors

11.2

%

11.6

%

13.8

%

14.6

%

14.3

%

16.4

%

12.2

%

12.5

%

Quality mix

42.1

%

42.4

%

42.6

%

44.7

%

36.2

%

36.9

%

41.7

%

42.8

%

Medicaid

57.9

%

57.6

%

57.4

%

55.3

%

63.8

%

63.1

%

58.3

%

57.2

%

Total skilled nursing

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

THE ENSIGN GROUP, INC.

SELECT PERFORMANCE INDICATORS

(Unaudited)

The following tables summarize our selected performance indicators for our assisted and independent living segment along with other statistics, for each of the periods indicated:

Three Months Ended December 31,

2018

2017

Change

% Change

(Dollars in thousands)

Revenue

$

40,462

$

35,836

$

4,626

12.9

%

Number of facilities at period end

56

49

7

14.3

%

Number of campuses at period end

24

21

3

14.3

%

Occupancy percentage (units)

75.9

%

75.8

%

0.1

%

Average monthly revenue per unit

$

2,866

$

2,792

$

74

2.7

%

Year Ended December 31,

2018

2017

Change

% Change

(Dollars in thousands)

Resident fee revenue

$

151,797

$

136,646

$

15,151

11.1

%

Number of facilities at period end

56

49

7

14.3

%

Number of campuses at period end

24

21

3

14.3

%

Occupancy percentage (units)

75.7

%

76.4

%

-0.7

%

Average monthly revenue per unit

$

2,861

$

2,800

$

61

2.2

%

THE ENSIGN GROUP, INC.

SELECT PERFORMANCE INDICATORS

(Unaudited)

The following tables summarize our selected performance indicators for our home health and hospice segment along with other statistics, for each of the periods indicated:

Three Months Ended December 31,

2018

2017

Change

% Change

(Dollars in thousands)

Home health and hospice revenue:

Home health services

$

22,614

$

20,048

$

2,566

12.8

%

Hospice services

21,579

19,636

1,943

9.9

%

Total home health and hospice revenue

$

44,193

$

39,684

$

4,509

11.4

%

Adjusted to reflect prior revenue guidance

Home health and hospice revenue

Home health services

$

22,882

$

20,048

$

2,834

14.1

%

Hospice services

21,581

19,636

1,945

9.9

%

Total home health and hospice revenue

$

44,463

$

39,684

$

4,779

12.0

%

Home health services:

Average medicare revenue per completed episode

$

3,027

$

2,985

$

42

1.4

%

Hospice services:

Average daily census

1,386

1,229

157

12.8

%

Home health and hospice agencies

54

46

8

17.4

%

Year Ended December 31,

2018

2017

Change

% Change

(Dollars in thousands)

Home health and hospice revenue

Home health services

$

86,379

$

73,045

$

13,334

18.3

%

Hospice services

82,658

69,358

13,300

19.2

%

Total home health and hospice revenue

$

169,037

$

142,403

$

26,634

18.7

%

Adjusted to reflect prior revenue guidance

Home health and hospice revenue

Home health services

$

87,728

$

73,045

$

14,683

20.1

%

Hospice services

83,143

69,358

13,785

19.9

%

Total home health and hospice revenue

$

170,871

$

142,403

$

28,468

20.0

%

Home health services:

Average medicare revenue per completed episode

$

2,982

$

3,028

$

(46

)

-1.5

%

Hospice services:

Average daily census

1,329

1,102

227

20.6

%

Home health and hospice agencies

54

46

8

17.4

%

THE ENSIGN GROUP, INC.

REVENUE BY PAYOR SOURCE

The following table sets forth our total revenue by payor source and as a percentage of total revenue for the periods indicated:

Three Months Ended December 31,

Year Ended December 31,

2018 As Reported

2018 adjusted to reflect prior revenue guidance

2017

2018 As Reported

2018 adjusted to reflect prior revenue guidance

2017

$

%

$

%

$

%

$

%

$

%

$

%

(Dollars in thousands)

(Dollars in thousands)

Revenue:

Medicaid

$

198,030

36.8

%

$

200,289

36.8

%

$

174,795

35.8

%

$

727,310

35.6

%

$

738,179

35.6

%

$

644,803

34.9

%

Medicare

142,896

26.6

%

143,081

26.3

%

130,465

26.8

%

552,577

27.1

%

556,159

26.8

%

515,884

27.9

%

Medicaid-skilled

31,662

5.9

%

32,073

5.8

%

27,208

5.6

%

117,686

5.8

%

119,667

5.8

%

102,875

5.6

%

Total

372,588

69.3

%

375,443

68.9

%

332,468

68.2

%

1,397,573

68.5

%

1,414,005

68.2

%

1,263,562

68.4

%

Managed Care

82,263

15.3

%

83,485

15.3

%

78,176

16.0

%

326,325

16.0

%

333,197

16.1

%

303,386

16.4

%

Private and Other(1)

82,924

15.4

%

85,921

15.8

%

77,061

15.8

%

316,761

15.5

%

326,267

15.7

%

282,369

15.2

%

Total revenue

$

537,775

100.0

%

$

544,849

100.0

%

$

487,705

100.0

%

$

2,040,659

100.0

%

$

2,073,469

100.0

%

$

1,849,317

100.0

%

(1) Private and other payors also includes revenue from all payors generated in our other ancillary services for the three months ended and year ended December 31, 2018 and 2017.

THE ENSIGN GROUP, INC.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION

(In thousands, except per share data)

(Unaudited)

RECONCILIATION OF GAAP TO NON-GAAP NET INCOME

Three Months Ended December 31,

Year Ended December 31,

2018

2017

2018

2017

Net income attributable to The Ensign Group, Inc.

$

26,360

$

11,206

$

92,364

$

40,475

Non-GAAP adjustments

Results related to facilities currently being constructed and other start-up operations(a)

492

2,374

3,840

13,378

Charges related to the settlement/(return of unclaimed class action settlement) of the class action lawsuit

-

14

(1,664

)

11,177

Share-based compensation expense(b)

2,697

2,941

10,337

9,695

Results related to closed operations and operations not at full capacity, including continued obligations and closing expense(c)

(a) Represents operating results for facilities currently being constructed and other start-up operations.

Three Months Ended December 31,

Year Ended December 31,

2018

2017

2018

2017

Revenue

$

(17,029

)

$

(17,480

)

$

(66,606

)

$

(62,686

)

Cost of services

13,661

15,726

55,106

59,424

Rent

3,627

3,865

14,377

15,559

Depreciation and amortization

233

263

963

1,081

Total Non-GAAP adjustment

$

492

$

2,374

$

3,840

$

13,378

(b) Represents share-based compensation expense incurred.

Three Months Ended December 31,

Year Ended December 31,

2018

2017

2018

2017

Cost of services

$

1,494

$

1,219

$

5,665

$

4,988

General and administrative

1,203

1722

4,672

4,707

Total Non-GAAP adjustment

$

2,697

$

2,941

$

10,337

$

9,695

(c) Represents results at closed operations and operations not at full capacity, including the fair value of continued obligation under the lease agreement and related closing expenses of $4.0 million for the year ended December 31, 2017. Included in the three months and year ended December 31, 2017 results is the loss recovery of $1.3 million of certain losses related to a closed facility in the prior year.

Three Months Ended December 31,

Year Ended December 31,

2018

2017

2018

2017

Revenue

$

-

$

-

$

-

$

(2,805

)

(Gains)/Losses related to operational closures

-

(410

)

-

2,321

Cost of services

137

321

601

5,115

Rent

76

93

301

885

Depreciation and amortization

9

-

31

86

Total Non-GAAP adjustment

$

222

$

4

$

933

$

5,602

(d) Represent bonus accrual as a result of the Tax Act.

Three Months Ended December 31,

Year Ended December 31,

2018

2017

2018

2017

Cost of services

-

600

-

600

General and administrative

-

2,500

-

2,500

Total Non-GAAP adjustment

$

-

$

3,100

$

-

$

3,100

(e) Losses and business interruption recoveries related to Hurricane Harvey and California fires.

Three Months Ended December 31,

Year Ended December 31,

2018

2017

2018

2017

Revenue

$

-

$

870

$

-

$

638

Cost of services

-

(129

)

(675

)

604

Rent

-

-

-

50

Depreciation and amortization

-

-

-

7

Total Non-GAAP adjustment

$

-

$

741

$

(675

)

$

1,299

(f) Included in depreciation and amortization are amortization expenses related to patient base intangible assets at newly acquired skilled nursing and assisted living facilities.

(g) Included in general and administrative expense are costs incurred to acquire an operation which are not capitalizable.

(h) Impairment charges to goodwill and long-lived assets at one of our other ancillary operations and two assisted living facilities.

Three Months Ended December 31,

Year Ended December 31,

2018

2017

2018

2017

Cost of services

4,632

-

8,285

-

Non-controlling interest

-

-

(476

)

-

Total Non-GAAP adjustment

$

4,632

$

-

$

7,809

$

-

(i) Included in general and administrative expense are professional fees associated with income tax rate credits, tax reform impacts and adoption of the new revenue recognition standard.

(j) Represents an adjustment to the provision for income tax to our historical year to date effective tax rate of 25.0%, resulting from the adoption of the Tax Cuts and Jobs Act, for the three months and year ended December 31, 2018 and 35.5% for the three months and year ended December 31, 2017.

THE ENSIGN GROUP, INC.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION

(In thousands)

(Unaudited)

The table below reconciles net income to EBITDA, Adjusted EBITDA and Adjusted EBITDAR for the periods presented:

Three Months Ended December 31,

Year Ended December 31,

2018

2017

2018

2017

Consolidated Statements of Income Data:

Net income

$

26,559

$

11,222

$

92,528

$

40,833

Less: net income attributable to noncontrolling interests

199

16

164

358

Interest expense, net

3,125

2,963

13,119

12,007

Provision for income taxes

4,763

11,958

22,841

28,445

Depreciation and amortization

12,199

11,760

47,344

44,472

EBITDA

$

46,447

$

37,887

$

175,668

$

125,399

Adjustments to EBITDA:

Earnings related to operations in the start-up phase

(3,368

)

(1,753

)

(11,500

)

(3,261

)

Charges related to the settlement/(return of unclaimed class action settlement) of the class action lawsuit and insurance claims

-

14

(1,664

)

11,177

Share-based compensation expense

2,697

2,941

10,337

9,695

Results related to closed operations and operations not at full capacity(a)

(a) Represents results at closed operations and operations not at full capacity during the years ended December 31, 2018 and 2017; including the fair value of continued obligation under the lease agreement and related closing expenses of $4.0 million for the year ended December 31, 2017. Included in the year ended December 31, 2017 results is the loss recovery of $1.3 million of certain losses related to a closed facility in 2016.

(b) Costs incurred to acquire operations which are not capitalizable.

(c) Professional fees associated with income tax credits, tax reform impacts and adoption of the new revenue recognition standard.

(d) Impairment charges of long-lived assets and goodwill during year ended December 31, 2018, excluding the impact of non-controlling interest of $0.5 million. Including the impact of noncontrolling interest, the impairment charge is $8.3 million.

THE ENSIGN GROUP, INC.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION

(In thousands)

(Unaudited)

The table below reconciles net income from operations to EBITDA, Adjusted EBITDA and Adjusted EBITDAR for each reportable segment for the periods presented:

Three Months Ended December 31,

Year Ended December 31,

Transitional and Skilled Services

Assisted and Independent Services

Home Health and Hospice

Transitional and Skilled Services

Assisted and Independent Services

Home Health and Hospice

2018

2017

2018

2017

2018

2017

2018

2017

2018

2017

2018

2017

Statements of Income Data:

Income from operations, excluding general and administrative expense(a)

$

55,169

$

39,910

$

1,065

$

4,298

$

6,494

$

5,805

$

190,924

$

140,272

$

15,426

$

16,736

$

26,117

$

19,717

Less: net income attributable to noncontrolling interests

-

-

-

-

183

27

-

-

-

-

595

160

Depreciation and amortization

8,360

7,890

1,920

1,647

256

245

31,931

29,928

7,282

6,334

1,045

945

EBITDA

$

63,529

$

47,800

$

2,985

$

5,945

$

6,567

$

6,023

$

222,855

$

170,200

$

22,708

$

23,070

$

26,567

$

20,502

Adjustments to EBITDA:

Results related to operations in the start-up phase

(3,455

)

(2,046

)

52

117

35

175

(11,924

)

(4,431

)

295

693

129

478

Results related to closed operations and operations not at full capacity

(a) General and administrative expenses are not allocated to any segment for purposes of determining segment profit or loss.

(b) Impairment charges to long-lived assets for two of our assisted living facilities.

Discussion of Non-GAAP Financial Measures

EBITDA consists of net income before (a) interest expense, net, (b) provisions for income taxes and (c) depreciation and amortization. EBITDAR consists of net income before (a) interest expense, net, (b) provisions for income taxes, (c) depreciation and amortization and (d) rent-cost of services. Adjusted EBITDA consists of net income before (a) interest expense, net, (b) provisions for income taxes, (c) depreciation and amortization, (d) earnings related to operations currently being constructed and other start-up operations, excluding depreciation, interest and income taxes, (e) results of closed operations and facilities not at full operation, excluding depreciation, interest and income taxes, (f) share-based compensation expense, (g) return of unclaimed class action settlement and charges related to class action lawsuit, (h) losses and business interruption recoveries related to Hurricane Harvey and the California fires on impacted operations, (i) impairment of goodwill and long-lived assets, (j) bonus accrual as a result of the Tax Act, (k) professional fees associated with income tax credits, tax reform impacts and adoption of the new revenue recognition standard and (l) transaction-related costs. Adjusted EBITDAR consists of net income before (a) interest expense, net, (b) provisions for income taxes, (c) depreciation and amortization, (d) rent-cost of services, (e) earnings related to facilities currently being constructed and other start-up operations, excluding rent, depreciation, interest and income taxes, (f) results of closed operation and facilities not at full operation, excluding rent, depreciation, interest and income taxes, (g) share-based compensation expense, (h) return of unclaimed class action settlement and charges related to class action lawsuit, (i) losses and business interruption recoveries related to Hurricane Harvey and the California fires on impacted operations, (j) impairment of goodwill and long-lived assets, (k) bonus accrual as a result off the Tax Act, (l) professional fees associated with income tax credits, tax reform impacts and adoption of the new revenue recognition standard and (m) transaction-related costs. The company believes that the presentation of EBITDA, adjusted EBITDA, adjusted EBITDAR, adjusted net income and adjusted earnings per share provides important supplemental information to management and investors to evaluate the company’s operating performance. The company believes disclosure of adjusted net income, adjusted net income per share, EBITDA, adjusted EBITDA and adjusted EBITDAR has economic substance because the excluded revenues and expenses are infrequent in nature and are variable in nature, or do not represent current revenues or cash expenditures. A material limitation associated with the use of these measures as compared to the GAAP measures of net income and diluted earnings per share is that they may not be comparable with the calculation of net income and diluted earnings per share for other companies in the company's industry. These non-GAAP financial measures should not be relied upon to the exclusion of GAAP financial measures. For further information regarding why the company believes that this non-GAAP measure provides useful information to investors, the specific manner in which management uses this measure, and some of the limitations associated with the use of this measure, please refer to the company's periodic filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K and Quarterly Report on Form 10-Q. The company’s periodic filings are available on the SEC's website at www.sec.gov or under the "Financial Information" link of the Investor Relations section on Ensign’s website at http://www.ensigngroup.net.